Bonds: Odds of Fed rate hike by mid-2016 drift lower

These were the movements in the most widely followed 10-year sovereign bond yields:

US: 0.84% (-3bp)

UK: 1.45% (-1bp)

France: 0.56% (-1bp)

Germany: 0.21% (-1bp)

Italy: 1.26% (-1bp)

Spain: 1.43% (+0bp)

Japan: 0.09% (-5bp)

Greece: 8.61% (-15bp)

Portugal: 2.92% (+7bp)

Gilts drifted higher ahead of the holiday-shortened Easter trading week with investors continuing to push out expectations for monetary policy tightening on both sides of the Atlantic, not to mention on the other side of the channel.

Significantly, two-year US Treasury note yields retreated by two basis points on Friday - and by a total of 11 basis points over the week - to 0.84% as the odds of an interest rate hike by the US Federal Reserve in 2016 continued to recede.

That has been a key 'talking point' among some market observers to the extent that rate-setters in the US may perhaps have expected the opposite to happen, with the prospect of looser policy driving a reflation trade.

Indeed, according to futures traders markets now attach 39% odds to the possibility of a hike by the Fed by the middle of this year, versus the roughly even odds they were assigning before the last Federal Open Market Committee meeting.

The above aside, the top headline at the end of the week was European Central Bank chief economist Peter Praet´s interview with La Repubblica, in which he left open the door to further interest rate cuts should they be deemed necessary.

Acting as a backdrop, the weekly tally for corporate bond issuance was €23bn, according to Bloomberg, as the ECB´s actions drove a surge in debt sales, spearheaded by a bumper €13.25bn bon sale from Anheuser-Busch Inbev.

The last five days also saw a fourth consecutive week of flows into so-called 'junk bond' funds, again, courtesy of the ECB, Bank of America-Merrill Lynch said, citing data from EPFR.

To take note of, Japan’s benchmark 10-year bond rocketed on Friday, sending yields to a record low of minus 0.125% at one point during the session.

In the emerging market space, the Central Bank of Russia surprised a minoirty of analysts who had expected the monetary authority to lower its main policy rate from 11.0%, with Governor Elvira Nabiullina adopting a cautious stance despite the recent strength seen in both the price of crude oil and the ruble.